How Can Governments Assist with Innovation?

To answer this question we can start by outlining some of the key benefits of an innovative economy, and therefore why governments should do everything in their power to encourage heavy investment in research and development.

Here are a few key benefits of innovation:

Innovation makes people’s lives easier and/or better. For example, it has recently been reported that a new Ultrasound machine is being developed, which will connect wirelessly to an iPad and transfer the resulting information from the scan. This new Ultrasound machine will cost far less than previous models, and this innovation should help to increase the level of healthcare in developing countries. In more industrial settings, technicians can be instantly alerted to potential technical issues with machinery via their iPads. This is just one of many ways in which innovation can improve efficiencies within a business.

Innovation has many economic benefits. As well as the jobs that are created by those undertaking the research and development, the resulting innovation can have a very positive impact on the economy. An example is the creation of mobile phones, which has created an industry worth many billions of pounds every year. Within this industry, companies such as Apple and Samsung are continuously innovating on a much more micro level, to the point where in 2014, a smartphone is comparable to a personal computer. Innovation in business often creates efficiencies, which makes companies more profitable, meaning they can invest more in growth through further R&D and increased employment.

Innovation creates more advanced economies. When we look at how life has changed in the past fifty or so years, the changes are quite astounding. Most if not all of these changes have come about as a result of innovation. Examples of huge innovations since 1965 include personal and laptop computers, mobile phones, microprocessors, digital cameras, and the internet. Our lives would be completely different if one or more of these things had not been created. Innovation really can revolutionise society, therefore it is paramount that governments do everything they can to promote it.

Existing ways the government is encouraging innovation:

R&D Tax Credits

R&D Tax Credits are an incentive set up by the government to help businesses claim back up to 30% of their expenditure on research and development from HMRC. The scheme is proving to be very effective, with a total of £1.36 billion claimed by companies in the UK in the tax year 2012-13. Earlier this year the Office for National Statistics released figures showing that companies in the United Kingdom spent £27 billion on research and development. However, more can be done to promote this scheme, as many businesses that are eligible to claim have not yet heard of the scheme.

Other ways the government can encourage innovation:

Grants & Subsidies

Going one step further than the tax credits, governments could set up grants and subsidies designed to fund new and existing research and development projects. This would be particularly useful to smaller businesses that perhaps do not have the capital to invest in research and development on a large scale, but may be on the brink of a new discovery. Perhaps the government could work with companies who had a turnover under a certain threshold, and/or match the R&D expenditure made by these companies.

Create a More Innovative Business Culture

The government has already created the Department for Business Innovation and Skills, but because the remit of this department is so large, it would perhaps be more effective to split it up and create one just for innovation. Additionally, more could be done to champion innovation in the workplace and emphasise the benefits, both to the company undertaking the R&D and the customers it serves, as well as the wider economic and societal benefits of innovative developments.

Attract the right people

By its very nature, true innovation demands some of the ‘best and brightest’ minds, but very rarely will we find all of these people concentrated in the same geographic area. There are a number of things that the government can do to attract these people. Perhaps they offer further tax breaks to businesses employing these people, or provide special working visas for people coming from abroad to work in research and development. On a more macro level, a country with a highly innovative culture will naturally start to attract more investment in business and infrastructure, benefiting everybody living there.

In summary, there are many benefits to innovation, and the government is certainly encouraging innovation by offering R&D tax credits; however, there is much that could be done in order to make the country more innovative.